The U.S. is the world leader in any number of critical Information Age technologies, but in one significant area it has been a laggard: consumer broadband. Weve got backbone bandwidth to burn criss-crossing the country, but too little of it makes its way into the home.
That situation is changing—and it is changing faster than most people realize. The U.S. consumer broadband market has reached a tipping point. At the end of 2003, just 23 percent of all U.S. homes had a broadband connection; by December 2004, that number is expected to jump to 31 percent, according to Strategy Analytics, a market research firm. And the rate of growth is accelerating.
The reasons for the upsurge are many. Like most new industries, particularly ones as capital intensive as telecom, it takes time to become a solidly profitable business. But that corner has now been turned. The large up-front costs that broadband providers incurred to upgrade their networks, train their employees and market their services are now being paid for by a much larger—and growing—group of customers, thus enabling providers to turn a profit on new customers much more quickly.
In turn, that rosier financial picture is creating greater competition between telecom and cable broadband providers, and the competition is resulting in better customer service, more features, faster connections, greater availability and lower prices. Entrepreneurs are starting innovative broadband services, such as Apple Computers iTunes, and consumers are taking notice—and signing up at record rates.
Why? Because broadband really is better. The difference between a dial-up modem and a fast, always-on broadband connection is like the difference between driving cross-country in a rickety old car and flying cross-country in a private jet.
The explosion in the consumer broadband market is having a ripple effect on the business market as well, an effect that will only increase with time. Some of the changes in the business market are obvious, and largely positive. In the past, for instance, small companies had to pay hundreds of dollars each month for a fractional T1 line, because that was all that was available. Now that same company can get a DSL line running at the same speed for a fraction of the price it paid for the T1.
Other changes will be more challenging, especially for certain industries. The growing popularity of downloadable music from services such as iTunes, for example, could have a devastating effect on traditional CD retailers. And the video business will be next to feel the pinch. Consider the impact DVDs have already had on video-rental stores. People have taken to buying DVDs instead of renting videotapes because they are convenient, inexpensive, widely available and of higher quality. And if you want to rent, rather than buy a DVD, you can order through an online service such as Netflix, which mails DVDs directly to consumers. Now think about what will happen when consumers can download an entire movie in minutes, and store it on a home server, just as easily as they now download a song. It will be more convenient and less expensive than any present-day service—even Netflix.
Music and videos are obvious examples. But the impact of consumer broadband on business will be even broader. The question every business executive should be asking today is this: "What will it mean for my business when half my customers and nearly all my business partners have high-speed, always-on Internet connections?" The answer to that question could cause many companies to rethink the way they do business.